Hardie reveals growing asbestos bill

Updated
November 24, 2009 00:50:00

James Hardie has revealed its asbestos compensation bill jumped $200 million in the past six months due to the surging Australian dollar. The currency impact pushed earnings at James Hardie into the red, but the stock was one of the best performers today as investors looked through the headline number to the better than expected underlying result.

ALI MOORE: James Hardie has revealed it's asbestos compensation bill jumped $200 million in the past six months due to the surging Australian dollar.

The currency impact pushed earnings at the building products group into the red, but the stock was one of the best performers today as investors looked through the headline number to the better than expected underlying result.

Neal Woolrich reports.

NEAL WOOLRICH: Over recent years there's been no shortage of anger directed at James Hardie, from asbestos campaigners and politicians, to the tax office and the corporate regulator.

Now it seems even the Australian dollar is conspiring against the company.

James Hardie has reported a net loss of $106 million for the September half.

The result included a $199 million increase in James Hardie's total liability to asbestos victims, which occurred because of the Australian dollar's sharp rise over the period.

RUSSELL CHENU, CFO, JAMES HARDIE: To a large extent it's non cash. It's non cash totally in the near term and in the longer term it can have a cash impact, but it's really noise in the results.

NEAL WOOLRICH: Investors also looked past the asbestos adjustment, preferring instead to focus on James Hardie's underlying result and a forecast that full year earnings will be at the top end of its previous guidance range.

CHRIS WESTON, INSTITUTIONAL DEALER, IG MARKETS: Certainly margins do seem to be going in the right direction, we're seeing costs and input costs lower, we're seeing cement prices and pulp prices going up and productivity increasing. So certainly things do seem to be going in the right direction in terms of their margins. Their net profit came out above expectations.

NEAL WOOLRICH: Earnings were up 4 per cent for the half, when legal expenses, one-off tax expenses, and the asbestos adjustment are excluded.

James Hardie shares jumped 6.3 per cent on the results announcement and have more than doubled since March.

The stock is now trading at 30 times the company's estimated 2010 earnings, suggesting to some the company is overpriced

CHRIS WESTON, INSTITUTIONAL DEALER, IG MARKETS: And I think that's really why the stock has under-performed over the last couple of months. Traders have seen the stock as relatively expensive when they look at other areas. I mean BHP's trading at 20 times forward earnings, you might suggest that's a little more compelling. But the result we have seen from James Hardie today does suggest their earnings are in a better space.

NEAL WOOLRICH: Notwithstanding that optimism, James Hardie continues to be weighed down by weakness in the United States' housing market, where the company makes more than four-fifths of its revenue

LOUIS GRIES, CEO, JAMES HARDIE: We haven't gotten any recovery, even though we all think things are settling down, we haven't seen that sign where things might start getting better. Even in a few markets it hasn't started yet.

NEAL WOOLRICH: And weakness in the US will also affect how much James Hardie can contribute to its asbestos fund.

James Hardie says it remains committed to a revised agreement to fund the compensation scheme.

The company expects to contribute to the fund this financial year when profits return, but can't say at this stage how much it can afford to put in.